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Turkish Foreign Minister Mevlut Cavusoglu (R) and his Iranian counterpart Mohammad Javad Zarif address a joint press conference following their meeting at the Foreign Ministry in Ankara on August 12, 2016. / AFP / ADEM ALTAN (Photo credit should read ADEM ALTAN/AFP/Getty Images)

How Turkey-Iran trade deal collapsed in two years

 

A preferential trade agreement between Turkey and Iran has proved to be a huge disappointment in its first two years, with bilateral trade lagging far behind the $35 billion target the deal was supposed to achieve. The agreement, which took effect Jan. 1, 2015, introduced tariff cuts on about 300 products with a view of tripling the trade volume. The results, however, turned far off the mark, failing to achieve even one-third of the target.

Summary⎙ Print Mutual tariff cuts and the lifting of international sanctions on Iran have failed to contain the decline in Turkish-Iranian trade, hit hard by regional rivalry and political tensions between the two neighbors.
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TranslatorSibel Utku Bila

Starting from its first year, the deal led to an awkward outcome: Instead of growing, the trade volume between the two neighbors declined. At the end of 2015, Turkish-Iranian trade stood at $9.76 billion — not only $25 billion short of the target, but also $4 billion below the 2014 figure of $13.7 billion.

Thus, hopes had to be extended to 2016, which came with added optimism as international sanctions against Iran were lifted in the wake of its nuclear deal with world powers. While the Iranian market whetted the appetite of global trade giants, Turkey saw itself in a highly favorable position, being an immediate neighbor with tariff cuts already in place. Yet a bigger disappointment was in store. Despite the lifting of sanctions, Turkish-Iranian trade in 2016 turned about $100 million less than the previous year, signaling the collapse of the preferential trade deal in just two years’ time.

It is almost impossible not to conclude that serious political issues are snagging economic ties. Chief among them is the two neighbors’ diverging policies in the Middle East, especially on Syria and Iraq. As Al-Monitor’s Fehim Tastekin noted in February, political tensions between Turkey and Iran, stemming from their regional rivalry, have come to threaten economic ties.

Political discord has undermined the two countries’ commerce so much that they seem headed to a point where they will trade only in natural gas and a few other urgent and compulsory items. The trade figures from the past five years offer a clear illustration of that trend.

Remarkably, Turkey and Iran traded more in the years before the preferential trade agreement. The bilateral trade volume had peaked in 2012, reaching $21.9 billion. But as the civil strife in Syria and Iraq flared, the figure began to steadily decline — first to $14.6 billion in 2013 and then to 13.7 billion in 2014. To reverse the trend, Ankara and Tehran enacted the preferential trade agreement, which they had negotiated for a whole decade. Yet bilateral tensions over regional policies proved so overwhelming that even the combined trade volumes of 2015 and 2016 — $9.76 billion and $9.67 billion, respectively — fell short of the $35 billion target set under the agreement, which today seems reduced to a symbolic importance.

The data from the past two years offers small solace for Turkey, indicating that the balance in the shrinking trade has been changing in its favor.

In 2016, Turkish exports to Iran stood at $4.97 billion, up from $3.66 billion the previous year, while imports from Iran, including natural gas, were worth $4.7 billion, down from $6.1 billion in 2015. It was the first time in 16 years that Turkey had a trade surplus vis-a-vis Iran. Though it is a tiny surplus of only about $270 million, the fact that the balance is changing in favor of Turkey is a noteworthy development, the outcome of a steady trend over the past four years.

In 2013, Turkish exports to Iran amounted to $4.2 billion, while imports were worth $10.4 billion, meaning a trade deficit of $6.2 billion. The deficit declined to $5.9 billion in 2014 and $2.4 billion in 2015 before turning to a surplus in 2016.

Yet because of the shrinking trade volume, this rise in exports is no reason to celebrate. Turkey was able to export some $10 billion worth of goods to Iran in 2012, but now this figure has fallen to $4.9 billion despite the lifting of sanctions and booming demand in Iran. The overall picture is pessimistic, with no tangible sign that tripling the trade volume is a target within reach. In February, bilateral tensions forced Turkish Economy Minister Nihat Zeybekci to cancel a visit to Tehran, where he had been expected to attend a business forum, together with a large number of Turkish entrepreneurs. This development alone undercuts any hope that things could take a turn for the better in 2017, as economic ties remain mired in the shadow of political discord.

 

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